Jim acquires a new seven-year class asset on September 20, 2012, for $80,000. He
ID: 2468851 • Letter: J
Question
Jim acquires a new seven-year class asset on September 20, 2012, for $80,000. He placed the asset in service on October 5, 2012. He does not elect to expense any of the asset under § 179 or elect straight-line, cost recovery. He takes additional first-year depreciation. He sells the asset on August 25, 2013. This is the only asset he acquires in 2012. Determine Jim’s cost recovery in 2012 and 2013.
Arnold and Beth file a joint return. Use the following data to calculate their deduction for AGI.
Mortgage interest on personal residence
$ 4,000
Property taxes on personal residence
2,000
Alimony payments
12,000
Moving expenses
6,000
Charitable contributions
1,500
State income taxes
5,000
Investment interest ($8,000 of expenses limited to net investment income of $6,000)
6,000
Unreimbursed employee expenses
2,500
Sales taxes
2,600
Mortgage interest on personal residence
$ 4,000
Property taxes on personal residence
2,000
Alimony payments
12,000
Moving expenses
6,000
Charitable contributions
1,500
State income taxes
5,000
Investment interest ($8,000 of expenses limited to net investment income of $6,000)
6,000
Unreimbursed employee expenses
2,500
Sales taxes
2,600
Explanation / Answer
Solution:
1) Calculation of Jim’s cost recovery in 2012 and 2013:
The mid-quarter convention applies.
2) Calculation of Arnold and Beth’s deduction for AGI:
Arnold and Beth’s deduction for AGI is 18,000 and consists of the following items.
All of the other items are itemized deductions. Note that the taxpayer must choose between the state income taxes and the sales taxes.
Additional first-year depreciation ($80,000 * .50) 40,000 MACRS cost recovery ($40,000 * .0357) 1,428 Total for 2012 41,428 2013 MACRS cost recovery [$40,000 * .2755 * (2.5/4)] 6,888Related Questions
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